Why binary options remain a ‘systematic risk’ for Canadians: OBSI

Despite CSA’s binary options ban in 2017—it’s currently illegal to advertise, offer, sell or otherwise trade binary options that are shorter than 30 days—the instruments are still a risk to investors.

As the Ombudsman for Banking Services and Investments (OBSI) explained in an Aug. 15 bulletin, MasterCard and Visa blocked binary options payments, but “investors in Canada are still able to purchase these offerings using other means and through other jurisdictions,” which “leaves consumers with few opportunities to recover their money if something goes wrong.”

The contracts or instruments allow investors to bet on the performance of an underlying asset, often a currency, commodity, stock index or share. In its 2017 notice, CSA said it found that, “however named, marketed or sold,” the instruments are risky and resulted in a “significant number of the complaints and inquiries” leading to the ban.

Binary options are referred to by many names, CSA said, including but not limited to all-or-nothing options, asset-or-nothing options and bet options.

In OBSI’s warning, the organization suggested investors be “very cautious about purchasing investments based solely on online or telephone marketing.”

“Binary options are a very high-risk investment that Canadians should avoid. […] At best, they are a high-risk investment strategy suitable only for sophisticated investors who are willing to lose their entire investment,” it said. “At worst, the investments may be frauds designed to take advantage of unwary investors.”

Read: IIROC warns about fraudsters illegally selling binary options

Its warning was released this week, OBSI said, because it has “received multiple complaints from investors who used their credit card to purchase binary options. These investors later disputed credit card charges related to these transactions.”

OBSI said that, while investors believed the charges should be reversed “because they did not receive the promised services (such as the ability to withdraw their investment capital),” it found that the banks it investigated were not at fault since the institutions had followed “normal chargeback policies and procedures.”

Given investors typically have no recourse for falling victim to binary options fraud, OBSI has identified the continued selling and buying of the instruments “as a systemic risk and reported it to the Financial Consumer Agency of Canada.”

To help protect clients, make sure they understand what binary options are and why they’ve been banned. Also, if an investor is unsure whether a company is licensed to sell products in Canada, OBSI suggested they use CSA’s national registration database.

Under current regulations, “The companies offering binary options are not licensed to sell investments to Canadians, they are not regulated in Canada and they are not within OBSI’s jurisdiction to investigate,” OBSI said.

Read: Expert insight on CSA’s enforcement report

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.